Insurance

Insurance

Overview
In law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...

 and economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, insurance is a form of risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...

 primarily used to hedge
Hedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...

 against the risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

 of a contingent, uncertain
Uncertainty
Uncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...

 loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium.
Discussion
Ask a question about 'Insurance'
Start a new discussion about 'Insurance'
Answer questions from other users
Full Discussion Forum
 
Unanswered Questions
Encyclopedia
In law
Law
Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...

 and economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, insurance is a form of risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...

 primarily used to hedge
Hedge (finance)
A hedge is an investment position intended to offset potential losses that may be incurred by a companion investment.A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of...

 against the risk
Risk
Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

 of a contingent, uncertain
Uncertainty
Uncertainty is a term used in subtly different ways in a number of fields, including physics, philosophy, statistics, economics, finance, insurance, psychology, sociology, engineering, and information science...

 loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; an insured, or policyholder, is the person or entity buying the insurance policy. The insurance rate is a factor used to determine the amount to be charged for a certain amount of insurance coverage, called the premium. Risk management
Risk management
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...

, the practice of appraising
Decision model
A decision method is an axiomatic system that contains at least one action axiom.Formulation is the first and often most challenging stage in using formal decision methods...

 and controlling risk, has evolved as a discrete field of study and practice.

The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

Principles


Insurance involves pooling funds from many insured entities (known as exposures) to pay for the losses that some may incur. The insured entities are therefore protected from risk for a fee, with the fee being dependent upon the frequency and severity of the event occurring. In order to be insurable, the risk insured against must meet certain characteristics in order to be an insurable risk
Insurable risk
An insurable risk is a risk that meets the ideal criteria for efficient insurance. The concept of insurable risk underlies nearly all insurance decisions.For a risk to be insurable, several things need to be true:...

. Insurance is a commercial enterprise and a major part of the financial services industry, but individual entities can also self-insure
Self insurance
Self insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.If self insurance is approached as a serious risk management technique, money is set aside using actuarial and insurance information and the law of large numbers...

 through saving money for possible future losses.

Insurability


Risk which can be insured by private companies typically share seven common characteristics:
  1. Large number of similar exposure units: Since insurance operates through pooling resources, the majority of insurance policies are provided for individual members of large classes, allowing insurers to benefit from the law of large numbers
    Law of large numbers
    In probability theory, the law of large numbers is a theorem that describes the result of performing the same experiment a large number of times...

     in which predicted losses are similar to the actual losses. Exceptions include Lloyd's of London
    Lloyd's of London
    Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...

    , which is famous for insuring the life or health of actors, sports figures and other famous individuals. However, all exposures will have particular differences, which may lead to different premium rates.
  2. Definite loss: The loss takes place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire
    Fire
    Fire is the rapid oxidation of a material in the chemical process of combustion, releasing heat, light, and various reaction products. Slower oxidative processes like rusting or digestion are not included by this definition....

    , automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease
    Occupational disease
    An occupational disease is any chronic ailment that occurs as a result of work or occupational activity. It is an aspect of occupational safety and health. An occupational disease is typically identified when it is shown that it is more prevalent in a given body of workers than in the general...

    , for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
  3. Accidental loss: The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be pure, in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks or even purchasing a lottery ticket, are generally not considered insurable.
  4. Large loss: The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is hardly any point in paying such costs unless the protection offered has real value to a buyer.
  5. Affordable premium: If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that the insurance will be purchased, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the US Financial Accounting Standards Board
    Financial Accounting Standards Board
    The Financial Accounting Standards Board is a private, not-for-profit organization whose primary purpose is to develop generally accepted accounting principles within the United States in the public's interest...

     standard number 113)
  6. Calculable loss: There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
  7. Limited risk of catastrophically large losses: Insurable losses are ideally independent and non-catastrophic, meaning that the losses do not happen all at once and individual losses are not severe enough to bankrupt the insurer; insurers may prefer to limit their exposure to a loss from a single event to some small portion of their capital base. Capital
    Capital (economics)
    In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

     constrains insurers' ability to sell earthquake insurance
    Earthquake insurance
    Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property...

     as well as wind insurance in hurricane
    Tropical cyclone
    A tropical cyclone is a storm system characterized by a large low-pressure center and numerous thunderstorms that produce strong winds and heavy rain. Tropical cyclones strengthen when water evaporated from the ocean is released as the saturated air rises, resulting in condensation of water vapor...

     zones. In the US, flood risk
    Flood insurance
    Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and floodways that are susceptible to flooding.-Hidden floods:Nationwide,...

     is insured by the federal government. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer's capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance
    Reinsurance
    Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

     market.

Legal


When a company insures an individual entity, there are basic legal requirements. Several commonly cited legal principles of insurance include:
  1. Indemnity
    Indemnity
    An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...

     – the insurance company indemnifies, or compensates, the insured in the case of certain losses only up to the insured's interest.
  2. Insurable interest
    Insurable interest
    Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object...

     – the insured typically must directly suffer from the loss. Insurable interest must exist whether property insurance or insurance on a person is involved. The concept requires that the insured have a "stake" in the loss or damage to the life or property insured. What that "stake" is will be determined by the kind of insurance involved and the nature of the property ownership or relationship between the persons.
  3. Utmost good faith
    Implied covenant of good faith and fair dealing
    In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract...

     – the insured and the insurer are bound by a good faith
    Good faith
    In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...

     bond of honesty and fairness. Material facts must be disclosed.
  4. Contribution – insurers which have similar obligations to the insured contribute in the indemnification, according to some method.
  5. Subrogation – the insurance company acquires legal rights to pursue recoveries on behalf of the insured; for example, the insurer may sue those liable for insured's loss.
  6. Causa proxima, or proximate cause – the cause of loss (the peril) must be covered under the insuring agreement of the policy, and the dominant cause must not be excluded
    Exclusion clause
    An exclusion clause is a term in a contract that seeks to restrict the rights of the parties to the contract.Traditionally, the district courts have sought to limit the operation of exclusion clauses...

  7. Mitigation - In case of any loss or casualty, the asset owner must attempt to keep the loss to a minimum, as if the asset was not insured.

Indemnification



To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. Accordingly, life insurance
Life insurance
Life insurance is a contract between an insurance policy holder and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death of the insured person. Depending on the contract, other events such as terminal illness or critical illness may also trigger...

 is generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a claim arises on the occurrence of a specified event). There are generally two types of insurance contracts that seek to indemnify an insured:
  1. an "indemnity" policy, and
  2. a "pay on behalf" or "on behalf of" policy.

The difference is significant on paper, but rarely material in practice.

An "indemnity" policy will never pay claims until the insured has paid out of pocket to some third party; for example, a visitor to your home slips on a floor that you left wet and sues you for $10,000 and wins. Under an "indemnity" policy the homeowner would have to come up with the $10,000 to pay for the visitor's fall and then would be "indemnified" by the insurance carrier for the out of pocket costs (the $10,000).

Under the same situation, a "pay on behalf" policy, the insurance carrier would pay the claim and the insured (the homeowner in the above example) would not be out of pocket for anything. Most modern liability insurance is written on the basis of "pay on behalf" language.

An entity seeking to transfer risk (an individual, corporation, or association of any type, etc.) becomes the 'insured' party once risk is assumed by an 'insurer', the insuring party, by means of a contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, called an insurance policy. Generally, an insurance contract includes, at a minimum, the following elements: identification of participating parties (the insurer, the insured, the beneficiaries), the premium, the period of coverage, the particular loss event covered, the amount of coverage (i.e., the amount to be paid to the insured or beneficiary in the event of a loss), and exclusions (events not covered). An insured is thus said to be "indemnified
Indemnity
An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...

" against the loss covered in the policy.

When insured parties experience a loss for a specified peril, the coverage entitles the policyholder to make a claim against the insurer for the covered amount of loss as specified by the policy. The fee paid by the insured to the insurer for assuming the risk is called the premium. Insurance premiums from many insureds are used to fund accounts reserved for later payment of claims — in theory for a relatively few claimants — and for overhead
Overhead (business)
In business, overhead or overhead expense refers to an ongoing expense of operating a business...

 costs. So long as an insurer maintains adequate funds set aside for anticipated losses (called reserves), the remaining margin is an insurer's profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

.

Effects


Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. On one hand it can increase fraud, on the other it can help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies.

Insurance can influence the probability of losses through moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

, insurance fraud
Insurance fraud
Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions...

, and preventive steps by the insurance company. Insurance scholars have typically used morale hazard
Morale hazard
In insurance analysis, morale hazard is an increase in the hazards presented by a risk arising from the insured's indifference to loss because of the existence of insurance. Insurance analysts distinguish this from moral hazard...

 to refer to the increased loss due to unintentional carelessness and moral hazard to refer to increased risk due to intentional carelessness or indifference. Insurers attempt to address carelessness through inspections, policy provisions requiring certain types of maintenance, and possible discounts for loss mitigation efforts. While in theory insurers could encourage investment in loss reduction, some commentators have argued that in practice insurers had historically not aggressively pursued loss control measures - particularly to prevent disaster losses such as hurricanes - because of concerns over rate reductions and legal battles. However, since about 1996 insurers began to take a more active role in loss mitigation, such as through building code
Building code
A building code, or building control, is a set of rules that specify the minimum acceptable level of safety for constructed objects such as buildings and nonbuilding structures. The main purpose of building codes are to protect public health, safety and general welfare as they relate to the...

s.

Underwriting and investing


The business model is to collect more in premium and investment income than is paid out in losses, and to also offer a competitive price which consumers will accept. Profit can be reduced to a simple equation: Profit = earned premium + investment income - incurred loss - underwriting expenses.

Insurers make money in two ways:
  1. Through underwriting
    Underwriting
    Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...

    , the process by which insurers select the risks to insure and decide how much in premiums to charge for accepting those risks;
  2. By investing the premiums they collect from insured parties.


The most complicated aspect of the insurance business is the actuarial science
Actuarial science
Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through education and experience...

 of ratemaking (price-setting) of policies, which uses statistics
Statistics
Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....

 and probability
Probability
Probability is ordinarily used to describe an attitude of mind towards some proposition of whose truth we arenot certain. The proposition of interest is usually of the form "Will a specific event occur?" The attitude of mind is of the form "How certain are we that the event will occur?" The...

 to approximate the rate of future claims based on a given risk. After producing rates, the insurer will use discretion to reject or accept risks through the underwriting process.

At the most basic level, initial ratemaking involves looking at the frequency
Frequency
Frequency is the number of occurrences of a repeating event per unit time. It is also referred to as temporal frequency.The period is the duration of one cycle in a repeating event, so the period is the reciprocal of the frequency...

 and severity
Severity
Severity may refer to:* Severity , a canceled video game* a dimension for classifying seriousness for Technical support issues...

 of insured perils and the expected average payout resulting from these perils. Thereafter an insurance company will collect historical loss data, bring the loss data to present value
Present value
Present value, also known as present discounted value, is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk...

, and compare these prior losses to the premium collected in order to assess rate adequacy. Loss ratio
Loss ratio
In insurance, the loss ratio is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums. For example, if an insurance company pays out $60 in claims for every $100 in collected premiums, then its loss ratio is 60%.Loss ratios for property and...

s and expense loads are also used. Rating for different risk characteristics involves at the most basic level comparing the losses with "loss relativities" - a policy with twice as many losses would therefore be charged twice as much. More complex multivariate analyses
Multivariate analysis
Multivariate analysis is based on the statistical principle of multivariate statistics, which involves observation and analysis of more than one statistical variable at a time...

 are sometimes used when multiple characteristics are involved and a univariate analysis could produce confounded results. Other statistical methods may be used in assessing the probability of future losses.

Upon termination of a given policy, the amount of premium collected and the investment gains thereon, minus the amount paid out in claims, is the insurer's underwriting profit
Underwriting profit
Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums....

 on that policy. Underwriting performance is measured by something called the "combined ratio" which is the ratio of expenses/losses to premiums. A combined ratio of less than 100 percent indicates an underwriting profit, while anything over 100 indicates an underwriting loss. A company with a combined ratio over 100% may nevertheless remain profitable due to investment earnings.

Insurance companies earn investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...

 profits on "float". Float, or available reserve, is the amount of money on hand at any given moment that an insurer has collected in insurance premiums but has not paid out in claims. Insurers start investing insurance premiums as soon as they are collected and continue to earn interest or other income on them until claims are paid out. The Association of British Insurers
Association of British Insurers
The Association of British Insurers or ABI is a trade association made up of insurance companies in the United Kingdom.-History:The ABI began in 1985 after several specialised insurance industry trade associations, including the British Insurance Association, the Life Offices’ Association, the Fire...

 (gathering 400 insurance companies and 94% of UK insurance services) has almost 20% of the investments in the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...

.

In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, the underwriting loss of property
Property insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main...

 and casualty insurance
Casualty insurance
Casualty insurance, often equated to liability insurance, is used to describe an area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or...

 companies was $142.3 billion in the five years ending 2003. But overall profit for the same period was $68.4 billion, as the result of float. Some insurance industry insiders, most notably Hank Greenberg
Maurice R. Greenberg
Maurice Raymond "Hank" Greenberg is an American business executive and former chairman and CEO of American International Group , which was the world's 18th largest public company and its largest insurance and financial services corporation.He is currently chairman and CEO of C.V. Starr & Co., Inc....

, do not believe that it is forever possible to sustain a profit from float without an underwriting profit as well, but this opinion is not universally held.

Naturally, the float method is difficult to carry out in an economically depressed
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....

 period. Bear markets do cause insurers to shift away from investments and to toughen up their underwriting standards, so a poor economy generally means high insurance premiums. This tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting, or insurance, cycle
Insurance cycle
The tendency to swing between profitable and unprofitable periods over time is commonly known as the underwriting or insurance cycle.- What is the Insurance Cycle :...

.

Claims


Claims and loss handling is the materialized utility of insurance; it is the actual "product" paid for. Claims may be filed by insureds directly with the insurer or through brokers or agents
Insurance broker
An insurance broker finds sources for contracts of insurance on behalf of their customers. The three largest insurance brokers in the world, by revenue, are Aon, Marsh & McLennan, and Willis Group Holdings.-Purpose of insurance brokers:...

. The insurer may require that the claim be filed on its own proprietary forms, or may accept claims on a standard industry form, such as those produced by ACORD
ACORD
ACORD, the Association for Cooperative Operations Research and Development, is the insurance industry's nonprofit standards developer, a resource for information about object technology, EDI, XML and electronic commerce in the United States and abroad....

.

Insurance company claims departments employ a large number of claims adjuster
Claims adjuster
Claims adjusters investigate insurance claims by interviewing the claimant and witnesses, consulting police and hospital records, and inspecting property damage to determine the extent of the company’s liability. In the United Kingdom, Ireland, Australia, South Africa, the Caribbean and New Zealand...

s supported by a staff of records management
Records management
Records management, or RM, is the practice of maintaining the records of an organization from the time they are created up to their eventual disposal...

 and data entry clerk
Data entry clerk
A data entry clerk, sometimes called a typist, is a member of staff employed to type data into a database using a keyboard. The keyboards used can often have specialist keys and multiple colours to help them in the task and speed up the work.-Examples:...

s. Incoming claims are classified based on severity and are assigned to adjusters whose settlement authority varies with their knowledge and experience. The adjuster undertakes an investigation of each claim, usually in close cooperation with the insured, determines if coverage is available under the terms of the insurance contract, and if so, the reasonable monetary value of the claim, and authorizes payment.

The policyholder may hire their own public adjuster
Public adjuster
A public adjuster is an insurance claims adjuster who is an advocate for the policyholder in appraising and negotiating a first party insurance claim. Aside from attorneys and the broker of record, public adjusters licensed by state departments of insurance are the only type of claims adjuster...

 to negotiate the settlement with the insurance company on their behalf. For policies that are complicated, where claims may be complex, the insured may take out a separate insurance policy add on, called loss recovery insurance, which covers the cost of a public adjuster in the case of a claim.

Adjusting liability insurance claims is particularly difficult because there is a third party involved, the plaintiff
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...

, who is under no contractual obligation to cooperate with the insurer and may in fact regard the insurer as a deep pocket
Deep pocket
Deep pocket is an American slang term; it usually means "extensive financial wealth or resources". It is usually used in reference to big companies or organizations , although it can be used in reference to individuals .In the context of a lawsuit, the deep pocket is often the target defendant,...

. The adjuster must obtain legal counsel for the insured (either inside "house" counsel or outside "panel" counsel), monitor litigation that may take years to complete, and appear in person or over the telephone with settlement authority at a mandatory settlement conference when requested by the judge.

If a claims adjuster suspects under-insurance, the condition of average
Condition of average
Condition of average is the insurance term used when calculating a payout against a claim where the policy undervalues the sum insured...

 may come into play to limit the insurance company's exposure.

In managing the claims handling function, insurers seek to balance the elements of customer satisfaction, administrative handling expenses, and claims overpayment leakages. As part of this balancing act, fraudulent insurance practices
Insurance fraud
Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions...

 are a major business risk that must be managed and overcome. Disputes between insurers and insureds over the validity of claims or claims handling practices occasionally escalate into litigation (see insurance bad faith
Insurance bad faith
Insurance bad faith is a legal term of art that describes a tort claim that an insured person may have against an insurance company for its bad acts. Under the law of most jurisdictions in the United States, insurance companies owe a duty of good faith and fair dealing to the persons they insure...

).

Marketing


Insurers will often use insurance agents
Agency (law)
The law of agency is an area of commercial law dealing with a contractual or quasi-contractual, or non-contractual set of relationships when a person, called the agent, is authorized to act on behalf of another to create a legal relationship with a third party...

 to initially market or underwrite their customers. Agents can be captive, meaning they write only for one company, or independent, meaning that they can issue policies from several companies. Commissions to agents represent a significant portion of an insurance cost and insurers that sell policies directly via mass marketing campaigns can offer lower prices. The existence and success of companies using insurance agents (with higher prices) is likely due to improved and personalized service.

History of insurance



In some sense we can say that insurance appears simultaneously with the appearance of human society. We know of two types of economies in human societies: natural or non-monetary economies (using barter and trade with no centralized nor standardized set of financial instruments) and more modern monetary economies (with markets, currency, financial instruments and so on). The former is more primitive and the insurance in such economies entails agreements of mutual aid. If one family's house is destroyed the neighbours are committed to help rebuild. Granaries housed another primitive form of insurance to indemnify against famines. Often informal or formally intrinsic to local religious customs, this type of insurance has survived to the present day in some countries where modern money economy with its financial instruments is not widespread.

Turning to insurance in the modern sense (i.e., insurance in a modern money economy, in which insurance is part of the financial sphere), early methods of transferring or distributing risk were practised by Chinese
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...

 and Babylonia
Babylonia
Babylonia was an ancient cultural region in central-southern Mesopotamia , with Babylon as its capital. Babylonia emerged as a major power when Hammurabi Babylonia was an ancient cultural region in central-southern Mesopotamia (present-day Iraq), with Babylon as its capital. Babylonia emerged as...

n traders as long ago as the 3rd
3rd millennium BC
The 3rd millennium BC spans the Early to Middle Bronze Age.It represents a period of time in which imperialism, or the desire to conquer, grew to prominence, in the city states of the Middle East, but also throughout Eurasia, with Indo-European expansion to Anatolia, Europe and Central Asia. The...

 and 2nd
2nd millennium BC
The 2nd millennium BC marks the transition from the Middle to the Late Bronze Age.Its first half is dominated by the Middle Kingdom of Egypt and Babylonia. The alphabet develops. Indo-Iranian migration onto the Iranian plateau and onto the Indian subcontinent propagates the use of the chariot...

 millennia
Millennium
A millennium is a period of time equal to one thousand years —from the Latin phrase , thousand, and , year—often but not necessarily related numerically to a particular dating system....

 BC, respectively. Chinese merchants travelling treacherous river rapids would redistribute their wares across many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a system which was recorded in the famous Code of Hammurabi
Code of Hammurabi
The Code of Hammurabi is a well-preserved Babylonian law code, dating to ca. 1780 BC . It is one of the oldest deciphered writings of significant length in the world. The sixth Babylonian king, Hammurabi, enacted the code, and partial copies exist on a human-sized stone stele and various clay...

, c. 1750 BC, and practised by early Mediterranean sailing merchant
Merchant
A merchant is a businessperson who trades in commodities that were produced by others, in order to earn a profit.Merchants can be one of two types:# A wholesale merchant operates in the chain between producer and retail merchant...

s. If a merchant received a loan to fund his shipment, he would pay the lender an additional sum in exchange for the lender's guarantee to cancel the loan should the shipment be stolen or lost at sea.

Achaemenian monarchs of Ancient Persia were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Norouz (beginning of the Iranian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The purpose of registering was that whenever the person who presented the gift registered by the court was in trouble, the monarch and the court would help him. Jahez, a historian and writer, writes in one of his books on ancient Iran: "[W]henever the owner of the present is in trouble or wants to construct a building, set up a feast, have his children married, etc. the one in charge of this in the court would check the registration. If the registered amount exceeded 10,000 Derrik, he or she would receive an amount of twice as much."

A thousand years later, the inhabitants of Rhodes
Rhodes
Rhodes is an island in Greece, located in the eastern Aegean Sea. It is the largest of the Dodecanese islands in terms of both land area and population, with a population of 117,007, and also the island group's historical capital. Administratively the island forms a separate municipality within...

 invented the concept of the general average
General average
The law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency...

. Merchants whose goods were being shipped together would pay a proportionally divided premium which would be used to reimburse any merchant whose goods were deliberately jettisoned in order to lighten the ship and save it from total loss.

The Talmud
Talmud
The Talmud is a central text of mainstream Judaism. It takes the form of a record of rabbinic discussions pertaining to Jewish law, ethics, philosophy, customs and history....

 deals with several aspects of insuring goods. Before insurance was established in the late 17th century, "friendly societies" existed in England, in which people donated amounts of money to a general sum that could be used for emergencies.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa
Genoa
Genoa |Ligurian]] Zena ; Latin and, archaically, English Genua) is a city and an important seaport in northern Italy, the capital of the Province of Genoa and of the region of Liguria....

 in the 14th century, as were insurance pools backed by pledges of landed estates. These new insurance contracts allowed insurance to be separated from investment, a separation of roles that first proved useful in marine insurance
Marine insurance
Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....

. Insurance became far more sophisticated in post-Renaissance
Renaissance
The Renaissance was a cultural movement that spanned roughly the 14th to the 17th century, beginning in Italy in the Late Middle Ages and later spreading to the rest of Europe. The term is also used more loosely to refer to the historical era, but since the changes of the Renaissance were not...

 Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...

, and specialized varieties developed.

Some forms of insurance had developed in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...

 by the early decades of the 17th century. For example, the will of the English colonist Robert Hayman
Robert Hayman
Robert Hayman was a poet, colonist and Proprietary Governor of Bristol's Hope colony in Newfoundland.-Early life and education:...

 mentions two "policies of insurance" taken out with the diocesan Chancellor of London, Arthur Duck. Of the value of £100 each, one relates to the safe arrival of Hayman's ship in Guyana and the other is in regard to "one hundred pounds assured by the said Doctor Arthur Ducke on my life". Hayman's will was signed and sealed on 17 November 1628 but not proved until 1633. Toward the end of the seventeenth century, London's growing importance as a centre for trade increased demand for marine insurance. In the late 1680s, Edward Lloyd
Edward Lloyd (coffeehouse owner)
Edward Lloyd ran the Lloyd's Coffee House in Lombard Street in the City of London which became a meeting place for merchants and shipowners. From the habit of their members to meet there, Lloyd's Coffee House spawned Lloyd's of London, Lloyd's Register, and Lloyd's List. There is no connection...

 opened a coffee house that became a popular haunt of ship owners, merchants, and ships' captains, and thereby a reliable source of the latest shipping news. It became the meeting place for parties wishing to insure cargoes and ships, and those willing to underwrite such ventures. Today, Lloyd's of London
Lloyd's of London
Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...

 remains the leading market (note that it is an insurance market rather than a company) for marine and other specialist types of insurance, but it operates rather differently than the more familiar kinds of insurance.
Insurance as we know it today can be traced to the Great Fire of London
Great Fire of London
The Great Fire of London was a major conflagration that swept through the central parts of the English city of London, from Sunday, 2 September to Wednesday, 5 September 1666. The fire gutted the medieval City of London inside the old Roman City Wall...

, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire converted the development of insurance "from a matter of convenience into one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance Office' in his new plan for London in 1667." A number of attempted fire insurance schemes came to nothing, but in 1681 Nicholas Barbon
Nicholas Barbon
Nicholas If-Jesus-Christ-Had-Not-Died-For-Thee-Thou-Hadst-Been-Damned Barebon who traded as Nicholas Barbon was an English economist, physician and financial speculator. He is counted among the critics of mercantilism and was one of the first proponents of the free market...

, and eleven associates, established England's first fire insurance company, the 'Insurance Office for Houses', at the back of the Royal Exchange. Initially, 5,000 homes were insured by Barbon's Insurance Office.

The first insurance company in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 underwrote fire insurance and was formed in Charles Town (modern-day Charleston
Charleston, South Carolina
Charleston is the second largest city in the U.S. state of South Carolina. It was made the county seat of Charleston County in 1901 when Charleston County was founded. The city's original name was Charles Towne in 1670, and it moved to its present location from a location on the west bank of the...

), South Carolina
South Carolina
South Carolina is a state in the Deep South of the United States that borders Georgia to the south, North Carolina to the north, and the Atlantic Ocean to the east. Originally part of the Province of Carolina, the Province of South Carolina was one of the 13 colonies that declared independence...

, in 1732. Benjamin Franklin
Benjamin Franklin
Dr. Benjamin Franklin was one of the Founding Fathers of the United States. A noted polymath, Franklin was a leading author, printer, political theorist, politician, postmaster, scientist, musician, inventor, satirist, civic activist, statesman, and diplomat...

 helped to popularize and make standard the practice of insurance, particularly against fire
Fire
Fire is the rapid oxidation of a material in the chemical process of combustion, releasing heat, light, and various reaction products. Slower oxidative processes like rusting or digestion are not included by this definition....

 in the form of perpetual insurance
Perpetual Insurance
Perpetual insurance is a type of homeowners insurance policy written to have no term, or date, when the policy expires. From the effective start date, the coverage exists for perpetuity. The insured deposits money, called a deposit premium, with the insurer for insurance for the life of the risk...

. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses. In the United States, regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...

 of the insurance industry is highly Balkanized
Balkanization
Balkanization, or Balkanisation, is a geopolitical term, originally used to describe the process of fragmentation or division of a region or state into smaller regions or states that are often hostile or non-cooperative with each other, and it is considered pejorative.The term refers to the...

, with primary responsibility assumed by individual state insurance departments. Whereas insurance markets have become centralized nationally and internationally, state insurance commissioners operate individually, though at times in concert through a national insurance commissioners' organization
National Association of Insurance Commissioners
The National Association of Insurance Commissioners is an Internal Revenue Code Section 501 non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. The NAIC was formed in 1871. Its current...

. In recent years, some have called for a dual state and federal regulatory system (commonly referred to as the Optional federal charter
Optional federal charter
Optional Federal Charter ' is a proposal to streamline and simplify US insurance regulation by allowing insurance companies to choose between a current state-based regulatory system and a single federal regulatory agency...

 (OFC)) for insurance similar to that which oversees state banks and national banks.

Types of insurance


Any risk that can be quantified can potentially be insured. Specific kinds of risk that may give rise to claims are known as perils. An insurance policy will set out in detail which perils are covered by the policy and which are not. Below are non-exhaustive lists of the many different types of insurance that exist. A single policy may cover risks in one or more of the categories set out below. For example, vehicle insurance
Vehicle insurance
Vehicle insurance is insurance purchased for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage and/or bodily injury resulting from traffic collisions and against liability that could also arise therefrom...

 would typically cover both the property risk (theft or damage to the vehicle) and the liability risk (legal claims arising from an accident). A home insurance
Home insurance
Home insurance, also commonly called hazard insurance or homeowner's insurance , is the type of property insurance that covers private homes...

 policy in the US typically includes coverage for damage to the home and the owner's belongings, certain legal claims against the owner, and even a small amount of coverage for medical expenses of guests who are injured on the owner's property.

Business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...

 insurance can take a number of different forms, such as the various kinds of professional liability insurance, also called professional indemnity (PI), which are discussed below under that name; and the business owner's policy (BOP), which packages into one policy many of the kinds of coverage that a business owner needs, in a way analogous to how homeowners' insurance packages the coverages that a homeowner needs.

Auto insurance




Auto insurance protects the policyholder against financial loss in the event of an incident involving a vehicle they own, such as in a traffic collision.

Coverage typically includes:
  1. Property coverage, for damage to or theft of the car;
  2. Liability coverage, for the legal responsibility to others for bodily injury or property damage;
  3. Medical coverage, for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.


Most countries, such as the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, require drivers to buy some, but not all, of these coverages. When a car is used as collateral for a loan the lender usually requires specific coverage.

Home insurance



Home insurance provides coverage for damage or destruction of the policyholder's home. In some geographical areas, the policy may exclude certain types of risks, such as flood or earthquake, that require additional coverage. Maintenance-related issues are typically the homeowner's responsibility. The policy may include inventory, or this can be bought as a separate policy, especially for people who rent housing. In some countries, insurers offer a package which may include liability and legal responsibility for injuries and property damage caused by members of the household, including pets.

Health insurance


Health insurance policies cover the cost of medical treatments. Dental insurance, like medical insurance protects policyholders for dental costs. In the US and Canada, dental insurance is often part of an employer's benefits package, along with health insurance.

Accident, sickness and unemployment insurance


  • Disability insurance
    Disability insurance
    Disability Insurance, often called DI or disability income insurance, is a form of insurance that insures the beneficiary's earned income against the risk that a disability will make working uncomfortable , painful , or impossible...

     policies provide financial support in the event of the policyholder becoming unable to work because of disabling illness or injury. It provides monthly support to help pay such obligations as mortgage loan
    Mortgage loan
    A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

    s and credit card
    Credit card
    A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...

    s. Short-term and long-term disability policies are available to individuals, but considering the expense, long-term policies are generally obtained only by those with at least six-figure incomes, such as doctors, lawyers, etc. Short-term disability insurance covers a person for a period typically up to six months, paying a stipend each month to cover medical bills and other necessities.
  • Long-term disability insurance covers an individual's expenses for the long term, up until such time as they are considered permanently disabled and thereafter. Insurance companies will often try to encourage the person back into employment in preference to and before declaring them unable to work at all and therefore totally disabled.
  • Disability overhead insurance
    Business overhead expense disability insurance
    Business overhead expense disability insurance pays the insured’s business overhead expenses if he or she becomes disabled. A BOE policy pays a monthly benefit based on actual expenses, not anticipated profits...

     allows business owners to cover the overhead expenses of their business while they are unable to work.
  • Total permanent disability insurance
    Total permanent disability insurance
    Total Permanent Disability is a phrase used in the insurance industry and in law. Generally speaking, it means that because of a sickness or injury, a person is unable to work in their own or any occupation for which they are suited by training, education, or experience...

     provides benefits when a person is permanently disabled and can no longer work in their profession, often taken as an adjunct to life insurance.
  • Workers' compensation
    Workers' compensation
    Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence...

     insurance replaces all or part of a worker's wage
    Wage
    A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...

    s lost and accompanying medical expenses incurred because of a job-related injury.

Casualty



Casualty insurance insures against accidents, not necessarily tied to any specific property. It is a broad spectrum of insurance that a number of other types of insurance could be classified, such as auto, workers compensation, and some liability insurances.
  • Crime insurance
    Crime insurance
    Crime insurance is insurance to cover losses due to victimization by criminals. It's also called "fidelity insurance." Many businesses purchase crime insurance that allows them to file claims for employee theft or other offenses with the potential to cause financial ruin.Insurance companies sell...

     is a form of casualty insurance that covers the policyholder against losses arising from the criminal acts of third parties. For example, a company can obtain crime insurance to cover losses arising from theft
    Theft
    In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...

     or embezzlement
    Embezzlement
    Embezzlement is the act of dishonestly appropriating or secreting assets by one or more individuals to whom such assets have been entrusted....

    .
  • Political risk insurance
    Political risk insurance
    Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss....

     is a form of casualty insurance that can be taken out by businesses with operations in countries in which there is a risk that revolution
    Revolution
    A revolution is a fundamental change in power or organizational structures that takes place in a relatively short period of time.Aristotle described two types of political revolution:...

     or other political
    Politics
    Politics is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs, including behavior within civil governments, but also applies to institutions, fields, and special interest groups such as the...

     conditions could result in a loss.

Life



Life insurance provides a monetary benefit to a decedent's family or other designated beneficiary, and may specifically provide for income to an insured person's family, burial, funeral and other final expenses. Life insurance policies often allow the option of having the proceeds paid to the beneficiary either in a lump sum cash payment or an annuity.

Annuities provide a stream of payments and are generally classified as insurance because they are issued by insurance companies, are regulated as insurance, and require the same kinds of actuarial and investment management expertise that life insurance requires. Annuities and pension
Pension
In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...

s that pay a benefit for life are sometimes regarded as insurance against the possibility that a retiree
Retirement
Retirement is the point where a person stops employment completely. A person may also semi-retire by reducing work hours.Many people choose to retire when they are eligible for private or public pension benefits, although some are forced to retire when physical conditions don't allow the person to...

 will outlive his or her financial resources. In that sense, they are the complement of life insurance and, from an underwriting perspective, are the mirror image of life
insurance.

Certain life insurance contracts accumulate cash
Cash
In common language cash refers to money in the physical form of currency, such as banknotes and coins.In bookkeeping and finance, cash refers to current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately...

 values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies
Endowment policy
An endowment policy is a life insurance contract designed to pay a lump sum after a specified term or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit...

, are financial instruments to accumulate or liquidate
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...

 wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

 when it is needed.

In many countries, such as the US and the UK, the tax law
Tax law
Tax law is the codified system of laws that describes government levies on economic transactions, commonly called taxes.-Major issues:Primary taxation issues facing the governments world over include;* taxes on income and wealth...

 provides that the interest on this cash value is not taxable under certain circumstances. This leads to widespread use of life insurance as a tax-efficient method of saving as well as protection in the event of early death.

In the US, the tax on interest income on life insurance policies and annuities is generally deferred. However, in some cases the benefit derived from tax deferral may be offset by a low return. This depends upon the insuring company, the type of policy and other variables (mortality, market return, etc.). Moreover, other income tax saving vehicles (e.g., IRAs, 401(k) plans, Roth IRAs) may be better alternatives for value accumulation.

Burial insurance


Burial insurance is a very old type of life insurance which is paid out upon death to cover final expenses, such as the cost of a funeral
Funeral
A funeral is a ceremony for celebrating, sanctifying, or remembering the life of a person who has died. Funerary customs comprise the complex of beliefs and practices used by a culture to remember the dead, from interment itself, to various monuments, prayers, and rituals undertaken in their honor...

. The Greeks
Ancient Greece
Ancient Greece is a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Included in Ancient Greece is the...

 and Romans
Ancient Rome
Ancient Rome was a thriving civilization that grew on the Italian Peninsula as early as the 8th century BC. Located along the Mediterranean Sea and centered on the city of Rome, it expanded to one of the largest empires in the ancient world....

 introduced burial insurance circa 600 AD when they organized guild
Guild
A guild is an association of craftsmen in a particular trade. The earliest types of guild were formed as confraternities of workers. They were organized in a manner something between a trade union, a cartel, and a secret society...

s called "benevolent societies" which cared for the surviving families and paid funeral expenses of members upon death. Guilds in the Middle Ages
Middle Ages
The Middle Ages is a periodization of European history from the 5th century to the 15th century. The Middle Ages follows the fall of the Western Roman Empire in 476 and precedes the Early Modern Era. It is the middle period of a three-period division of Western history: Classic, Medieval and Modern...

 served a similar purpose, as did friendly societies during Victorian times.

Property




Property insurance provides protection against risks to property, such as fire
Fire
Fire is the rapid oxidation of a material in the chemical process of combustion, releasing heat, light, and various reaction products. Slower oxidative processes like rusting or digestion are not included by this definition....

, theft
Theft
In common usage, theft is the illegal taking of another person's property without that person's permission or consent. The word is also used as an informal shorthand term for some crimes against property, such as burglary, embezzlement, larceny, looting, robbery, shoplifting and fraud...

 or weather
Weather
Weather is the state of the atmosphere, to the degree that it is hot or cold, wet or dry, calm or stormy, clear or cloudy. Most weather phenomena occur in the troposphere, just below the stratosphere. Weather refers, generally, to day-to-day temperature and precipitation activity, whereas climate...

 damage. This may include specialized forms of insurance such as fire insurance, flood insurance
Flood insurance
Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and floodways that are susceptible to flooding.-Hidden floods:Nationwide,...

, earthquake insurance
Earthquake insurance
Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property...

, home insurance
Home insurance
Home insurance, also commonly called hazard insurance or homeowner's insurance , is the type of property insurance that covers private homes...

, inland marine insurance or boiler insurance
Boiler insurance
Boiler insurance is a type of insurance that covers repairs and in some cases the replacement of a home boiler. It can also cover other parts of the central heating system and even plumbing and electrics.-Types of boiler cover:...

.
The term property insurance may, like casualty insurance, be used as a broad category of various subtypes of insurance, some of which are listed below:

  • Aviation insurance
    Aviation insurance
    Aviation insurance is insurance coverage geared specifically to the operation of aircraft and the risks involved in aviation. Aviation insurance policies are distinctly different from those for other areas of transportation and tend to incorporate aviation terminology, as well as terminology,...

     protects aircraft
    Aircraft
    An aircraft is a vehicle that is able to fly by gaining support from the air, or, in general, the atmosphere of a planet. An aircraft counters the force of gravity by using either static lift or by using the dynamic lift of an airfoil, or in a few cases the downward thrust from jet engines.Although...

     hulls and spares, and associated liability risks, such as passenger and third-party liability. Airport
    Airport
    An airport is a location where aircraft such as fixed-wing aircraft, helicopters, and blimps take off and land. Aircraft may be stored or maintained at an airport...

    s may also appear under this subcategory, including air traffic control and refuelling operations for international airports through to smaller domestic exposures.

  • Boiler insurance
    Boiler insurance
    Boiler insurance is a type of insurance that covers repairs and in some cases the replacement of a home boiler. It can also cover other parts of the central heating system and even plumbing and electrics.-Types of boiler cover:...

     (also known as boiler and machinery insurance, or equipment breakdown insurance) insures against accidental physical damage to boilers, equipment or machinery.

  • Builder's risk insurance
    Builder's risk insurance
    Builder's risk insurance is a special type of property insurance which indemnifies against damage to buildings while they are under construction...

     insures against the risk of physical loss or damage to property during construction. Builder's risk insurance is typically written on an "all risk" basis covering damage arising from any cause (including the negligence of the insured) not otherwise expressly excluded. Builder's risk insurance is coverage that protects a person's or organization's insurable interest in materials, fixtures and/or equipment being used in the construction or renovation of a building or structure should those items sustain physical loss or damage from an insured peril.

  • Crop insurance
    Crop insurance
    Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities...

     may be purchased by farmers to reduce or manage various risks associated with growing crops. Such risks include crop loss or damage caused by weather, hail, drought, frost damage, insects, or disease.

  • Earthquake insurance
    Earthquake insurance
    Earthquake insurance is a form of property insurance that pays the policyholder in the event of an earthquake that causes damage to the property...

     is a form of property insurance that pays the policyholder in the event of an earthquake
    Earthquake
    An earthquake is the result of a sudden release of energy in the Earth's crust that creates seismic waves. The seismicity, seismism or seismic activity of an area refers to the frequency, type and size of earthquakes experienced over a period of time...

     that causes damage to the property. Most ordinary home insurance policies do not cover earthquake damage. Earthquake insurance policies generally feature a high deductible
    Deductible
    In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...

    . Rates depend on location and hence the likelihood of an earthquake, as well as the construction of the home
    Earthquake engineering
    Earthquake engineering is the scientific field concerned with protecting society, the natural and the man-made environment from earthquakes by limiting the seismic risk to socio-economically acceptable levels...

    .

  • Fidelity bond
    Fidelity bond
    A fidelity bond is a form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees....

     is a form of casualty insurance that covers policyholders for losses incurred as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.


  • Flood insurance
    Flood insurance
    Flood insurance denotes the specific insurance coverage against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and floodways that are susceptible to flooding.-Hidden floods:Nationwide,...

     protects against property loss due to flooding. Many insurers in the US do not provide flood insurance in some parts of the country. In response to this, the federal government created the National Flood Insurance Program
    National Flood Insurance Program
    The National Flood Insurance Program is a program created by the Congress of the United States in 1968 through the National Flood Insurance Act of 1968 . The program enables property owners in participating communities to purchase insurance protection from the government against losses from flooding...

     which serves as the insurer of last resort.

  • Home insurance
    Home insurance
    Home insurance, also commonly called hazard insurance or homeowner's insurance , is the type of property insurance that covers private homes...

    , also commonly called hazard insurance, or homeowners insurance (often abbreviated in the real estate industry as HOI), is the type of property insurance that covers private homes, as outlined above.

  • Landlord insurance covers residential and commercial properties which are rented to others. Most homeowners' insurance covers only owner-occupied homes.


  • Marine insurance
    Marine insurance
    Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination....

     and marine cargo insurance cover the loss or damage of vessels at sea or on inland waterways, and of cargo in transit, regardless of the method of transit. When the owner of the cargo and the carrier are separate corporations, marine cargo insurance typically compensates the owner of cargo for losses sustained from fire, shipwreck, etc., but excludes losses that can be recovered from the carrier or the carrier's insurance. Many marine insurance underwriters will include "time element" coverage in such policies, which extends the indemnity to cover loss of profit and other business expenses attributable to the delay caused by a covered loss.

  • Supplemental natural disaster insurance covers specified expenses after a natural disaster renders the policyholder's home uninhabitable. Periodic payments are made directly to the insured until the home is rebuilt or a specified time period has elapsed.

  • Surety bond
    Surety bond
    A surety bond is a promise to pay one party a certain amount if a second party fails to meet some obligation, such as fulfilling the terms of a contract...

     insurance is a three-party insurance guaranteeing the performance of the principal.

  • Terrorism insurance
    Terrorism insurance
    Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities....

     provides protection against any loss or damage caused by terrorist
    Terrorism
    Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...

     activities. In the US in the wake of 9/11, the Terrorism Risk Insurance Act
    Terrorism Risk Insurance Act
    The Terrorism Risk Insurance Act is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. The Act is intended as a temporary measure to allow time for the insurance...

     2002 (TRIA) set up a federal Program providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism. The program was extended until the end of 2014 by the Terrorism Risk Insurance Program Reauthorization Act 2007 (TRIPRA).

  • Volcano insurance is a specialized insurance protecting against damage arising specifically from volcanic eruptions
    Volcano
    2. Bedrock3. Conduit 4. Base5. Sill6. Dike7. Layers of ash emitted by the volcano8. Flank| 9. Layers of lava emitted by the volcano10. Throat11. Parasitic cone12. Lava flow13. Vent14. Crater15...

    .

  • Windstorm insurance is an insurance covering the damage that can be caused by wind events such as hurricanes
    Tropical cyclone
    A tropical cyclone is a storm system characterized by a large low-pressure center and numerous thunderstorms that produce strong winds and heavy rain. Tropical cyclones strengthen when water evaporated from the ocean is released as the saturated air rises, resulting in condensation of water vapor...

    .

Liability



Liability insurance is a very broad superset that covers legal claims against the insured. Many types of insurance include an aspect of liability coverage. For example, a homeowner's insurance policy will normally include liability coverage which protects the insured in the event of a claim brought by someone who slips and falls on the property; automobile insurance also includes an aspect of liability insurance that indemnifies against the harm that a crashing car can cause to others' lives, health, or property. The protection offered by a liability insurance policy is twofold: a legal defense in the event of a lawsuit commenced against the policyholder and indemnification (payment on behalf of the insured) with respect to a settlement or court verdict. Liability policies typically cover only the negligence of the insured, and will not apply to results of wilful or intentional acts by the insured.

  • Public liability
    Public liability
    Public liability is part of the law of tort which focuses on civil wrongs. An applicant usually sues the respondent under common law based on negligence and/or damages...

     insurance covers a business or organization against claims should its operations injure a member of the public or damage their property in some way.
  • Directors and officers liability insurance
    Directors and officers liability insurance
    Directors and Officers Liability Insurance is liability insurance payable to the directors and officers of a company, or to the organization itself, to cover damages or defense costs in the event they suffer such losses as a result of a lawsuit for alleged wrongful acts while acting in their...

     (D&O) protects an organization (usually a corporation) from costs associated with litigation resulting from errors made by directors and officers for which they are liable.
  • Environmental liability insurance protects the insured from bodily injury, property damage and cleanup costs as a result of the dispersal, release or escape of pollutants.
  • Errors and omissions insurance is business liability insurance for professionals such as insurance agents, real estate agents and brokers, architects, third-party administrators (TPAs) and other business professionals.
  • Prize indemnity insurance
    Prize indemnity insurance
    Prize indemnity insurance is indemnification insurance for a promotion in which the participants are offered the chance to win prizes. Instead of keeping cash reserves to cover large prizes, the promoter pays a premium to an insurance company, which then reimburses the insured should a prize be...

     protects the insured from giving away a large prize at a specific event. Examples would include offering prizes to contestants who can make a half-court shot at a basketball
    Basketball
    Basketball is a team sport in which two teams of five players try to score points by throwing or "shooting" a ball through the top of a basketball hoop while following a set of rules...

     game, or a hole-in-one at a golf
    Golf
    Golf is a precision club and ball sport, in which competing players use many types of clubs to hit balls into a series of holes on a golf course using the fewest number of strokes....

     tournament.
  • Professional liability insurance
    Professional liability insurance
    Professional liability insurance , also called professional indemnity insurance but more commonly known as errors & omissions in the US, is a form of liability insurance that helps protect professional advice- and service-providing individuals and companies from bearing the full cost of defending...

    , also called professional indemnity insurance (PI), protects insured professionals such as architectural corporations and medical practitioners against potential negligence claims made by their patients/clients. Professional liability insurance may take on different names depending on the profession. For example, professional liability insurance in reference to the medical profession may be called medical malpractice
    Medical malpractice
    Medical malpractice is professional negligence by act or omission by a health care provider in which the treatment provided falls below the accepted standard of practice in the medical community and causes injury or death to the patient, with most cases involving medical error. Standards and...

     insurance.

Credit



Credit insurance repays some or all of a loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....

 when certain circumstances arise to the borrower such as unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

, disability
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...

, or death
Death
Death is the permanent termination of the biological functions that sustain a living organism. Phenomena which commonly bring about death include old age, predation, malnutrition, disease, and accidents or trauma resulting in terminal injury....

.
  • Mortgage insurance
    Mortgage insurance
    Mortgage insurance is an insurance policy which compensates lenders or investors for losses due to the default of a mortgage loan. Mortgage insurance can be either public or private depending upon the insurer...

     insures the lender against default by the borrower. Mortgage insurance is a form of credit insurance, although the name "credit insurance" more often is used to refer to policies that cover other kinds of debt.
  • Many credit cards offer payment protection plans which are a form of credit insurance.
  • Accounts Receivable insurance also known as Credit or Trade Credit insurance is business insurance over the accounts receivables of the insured. The policy pays the policy holder for covered accounts receivable if the debtor defaults on payment.

Other types

  • All-risk insurance is an insurance that covers a wide-range of incidents and perils, except those noted in the policy. All-risk insurance is different from peril-specific insurance that cover losses from only those perils listed in the policy. In car insurance, all-risk policy includes also the damages caused by the own driver.

  • Bloodstock insurance covers individual horse
    Horse
    The horse is one of two extant subspecies of Equus ferus, or the wild horse. It is a single-hooved mammal belonging to the taxonomic family Equidae. The horse has evolved over the past 45 to 55 million years from a small multi-toed creature into the large, single-toed animal of today...

    s or a number of horses under common ownership. Coverage is typically for mortality as a result of accident, illness or disease but may extend to include infertility, in-transit loss, veterinary fees, and prospective foal.
  • Business interruption insurance
    Business interruption insurance
    Business interruption insurance covers the loss of income that a business suffers after a disaster while its facility is being rebuilt. A property insurance policy only covers the physical damage to the business, while the additional coverage allotted by the business interruption policy covers the...

     covers the loss of income, and the expenses incurred, after a covered peril interrupts normal business operations.
  • Collateral protection insurance
    Collateral protection insurance
    Collateral Protection Insurance, or CPI, insures property held as collateral for loans made by lending institutions. CPI may be classified as single-interest insurance if it protects the interest of the lender, a single party, or as dual-interest insurance coverage if it protects the interest of...

     (CPI) insures property (primarily vehicles) held as collateral for loans made by lending institutions.
  • Defense Base Act
    Defense Base Act
    The Defense Base Act is an extension of the federal workers' compensation program that covers longshoremen and harbor workers, the Longshore and Harbor Workers' Compensation Act . The DBA covers persons employed at United States defense bases overseas...

     (DBA) insurance provides coverage for civilian workers hired by the government to perform contracts outside the US and Canada. DBA is required for all US citizens, US residents, US Green Card holders, and all employees or subcontractors hired on overseas government contracts. Depending on the country, foreign nationals must also be covered under DBA. This coverage typically includes expenses related to medical treatment and loss of wages, as well as disability and death benefits.
  • Expatriate insurance
    Expatriate insurance
    Expatriate insurance policies are designed to cover financial and other losses incurred by expatriates while living and working in a country other than one's own....

     provides individuals and organizations operating outside of their home country with protection for automobiles, property, health, liability and business pursuits.
  • Kidnap and ransom insurance
    Kidnap and ransom insurance
    Kidnap and ransom insurance or K&R insurance is designed to protect individuals and corporations operating in high-risk areas around the world, such as Mexico, Venezuela, Haiti, and Nigeria, certain other countries in Latin America, as well as some parts of the Russian Federation and Eastern Europe...

     is designed to protect individuals and corporations operating in high-risk areas around the world against the perils of kidnap, extortion, wrongful detention and hijacking.
  • Legal expenses insurance
    Legal Expenses Insurance
    Legal expenses insurance , also known as legal protection insurance or simply legal insurance, is a type of insurance which covers policyholders against the potential costs of legal action brought against the policyholder by another individual or institution...

     covers policyholders for the potential costs of legal action against an institution or an individual. When something happens which triggers the need for legal action, it is known as "the event". There are two main types of legal expenses insurance: before the event insurance and after the event insurance.
  • Locked funds insurance
    Locked Funds Insurance
    Locked Funds Insurance is a little known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorised parties. In special cases, a government may authorise its use in protecting semi-private funds which are liable to tamper. Terms...

     is a little-known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorized parties. In special cases, a government may authorize its use in protecting semi-private funds which are liable to tamper. The terms of this type of insurance are usually very strict. Therefore it is used only in extreme cases where maximum security of funds is required.
  • Livestock
    Livestock
    Livestock refers to one or more domesticated animals raised in an agricultural setting to produce commodities such as food, fiber and labor. The term "livestock" as used in this article does not include poultry or farmed fish; however the inclusion of these, especially poultry, within the meaning...

     insurance is a specialist policy provided to, for example, commercial or hobby farms, aquariums, fish farms or any other animal holding. Cover is available for mortality or economic slaughter as a result of accident, illness or disease but can extend to include destruction by government order.

  • Media liability insurance is designed to cover professionals that engage in film and television production and print, against risks such as defamation.
  • Nuclear incident insurance covers damages resulting from an incident involving radioactive materials
    Nuclear and radiation accidents
    A nuclear and radiation accident is defined by the International Atomic Energy Agency as "an event that has led to significant consequences to people, the environment or the facility...

     and is generally arranged at the national level. (See the nuclear exclusion clause
    Nuclear exclusion clause
    The nuclear exclusion clause is a clause which excludes damage caused by nuclear and radiation accidents from regular insurance policies of, for example, home owners....

     and for the US the Price-Anderson Nuclear Industries Indemnity Act
    Price-Anderson Nuclear Industries Indemnity Act
    The Price-Anderson Nuclear Industries Indemnity Act is a United States federal law, first passed in 1957 and since renewed several times, which governs liability-related issues for all non-military nuclear facilities constructed in the United States before 2026...

    .)
  • Pet insurance
    Pet insurance
    Pet health insurance pays the veterinary costs if one's pet becomes ill or is injured in an accident. Some policies will also pay out when the pet dies, or if it's lost or stolen....

     insures pets against accidents and illnesses; some companies cover routine/wellness care and burial, as well.
  • Pollution insurance usually takes the form of first-party coverage for contamination of insured property either by external or on-site sources. Coverage is also afforded for liability to third parties arising from contamination of air, water, or land due to the sudden and accidental release of hazardous materials from the insured site. The policy usually covers the costs of cleanup and may include coverage for releases from underground storage tanks. Intentional acts are specifically excluded.
  • Purchase insurance is aimed at providing protection on the products people purchase. Purchase insurance can cover individual purchase protection, warranties, guarantees, care plans and even mobile phone insurance. Such insurance is normally very limited in the scope of problems that are covered by the policy.
  • Title insurance
    Title insurance
    Title insurance is a form of indemnity insurance predominantly found in the United States which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Title insurance is principally a product developed and sold in the...

     provides a guarantee that title to real property
    Real property
    In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...

     is vested in the purchaser and/or mortgagee, free and clear of lien
    Lien
    In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation...

    s or encumbrances. It is usually issued in conjunction with a search of the public records performed at the time of a real estate
    Real estate
    In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...

     transaction.
  • Travel insurance
    Travel insurance
    Travel insurance is insurance that is intended to cover medical expenses, financial default of travel suppliers, and other losses incurred while traveling, either within one's own country, or internationally...

     is an insurance cover taken by those who travel abroad, which covers certain losses such as medical expenses, loss of personal belongings, travel delay, and personal liabilities.

Insurance financing vehicles

  • Fraternal insurance is provided on a cooperative basis by fraternal benefit societies
    Benefit society
    A benefit society or mutual aid society is an organization or voluntary association formed to provide mutual aid, benefit or insurance for relief from sundry difficulties...

     or other social organizations.
  • No-fault insurance
    No-fault insurance
    In its broadest sense, "no-fault insurance" is a term used to describe any type of insurance contract under which insureds are indemnified for losses by their own insurance company, regardless of fault in the incident generating losses. In this sense, it is no different from first-party coverage...

     is a type of insurance policy (typically automobile insurance) where insureds are indemnified by their own insurer regardless of fault in the incident.
  • Protected self-insurance is an alternative risk financing mechanism in which an organization retains the mathematically calculated cost of risk within the organization and transfers the catastrophic risk with specific and aggregate limits to an insurer so the maximum total cost of the program is known. A properly designed and underwritten Protected Self-Insurance Program reduces and stabilizes the cost of insurance and provides valuable risk management information.
  • Retrospectively rated insurance is a method of establishing a premium on large commercial accounts. The final premium is based on the insured's actual loss experience during the policy term, sometimes subject to a minimum and maximum premium, with the final premium determined by a formula. Under this plan, the current year's premium is based partially (or wholly) on the current year's losses, although the premium adjustments may take months or years beyond the current year's expiration date. The rating formula is guaranteed in the insurance contract. Formula: retrospective premium = converted loss + basic premium × tax multiplier. Numerous variations of this formula have been developed and are in use.
  • Formal self insurance
    Self insurance
    Self insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.If self insurance is approached as a serious risk management technique, money is set aside using actuarial and insurance information and the law of large numbers...

     is the deliberate decision to pay for otherwise insurable losses out of one's own money. This can be done on a formal basis by establishing a separate fund into which funds are deposited on a periodic basis, or by simply forgoing the purchase of available insurance and paying out-of-pocket. Self insurance is usually used to pay for high-frequency, low-severity losses. Such losses, if covered by conventional insurance, mean having to pay a premium that includes loadings for the company's general expenses, cost of putting the policy on the books, acquisition expenses, premium taxes, and contingencies. While this is true for all insurance, for small, frequent losses the transaction costs may exceed the benefit of volatility reduction that insurance otherwise affords.
  • Reinsurance
    Reinsurance
    Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

     is a type of insurance purchased by insurance companies or self-insured employers to protect against unexpected losses. Financial reinsurance
    Financial reinsurance
    Financial Reinsurance , is a form of reinsurance which is focused more on capital management than on risk transfer. In the non-life segment of the insurance industry this class of transactions is often referred to as finite reinsurance....

     is a form of reinsurance that is primarily used for capital management rather than to transfer insurance risk.
  • Social insurance
    Social insurance
    Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

     can be many things to many people in many countries. But a summary of its essence is that it is a collection of insurance coverages (including components of life insurance, disability income insurance, unemployment insurance, health insurance, and others), plus retirement savings, that requires participation by all citizens. By forcing everyone in society to be a policyholder and pay premiums, it ensures that everyone can become a claimant when or if he/she needs to. Along the way this inevitably becomes related to other concepts such as the justice system and the welfare state
    Welfare state
    A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...

    . This is a large, complicated topic that engenders tremendous debate, which can be further studied in the following articles (and others):
    • National Insurance
      National Insurance
      National Insurance in the United Kingdom was initially a contributory system of insurance against illness and unemployment, and later also provided retirement pensions and other benefits...

    • Social safety net
      Social safety net
      Social safety nets, or "socioeconomic safety nets", are non-contributory transfer programs seeking to prevent the poor or those vulnerable to shocks and poverty from falling below a certain poverty level. Safety net programs can be provided by the public sector or by the private sector...

    • Social security
      Social security
      Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

    • Social Security debate (United States)
      Social Security debate (United States)
      This article concerns proposals to change the Social Security system in the United States. Social Security is a social insurance program officially called "Old-Age, Survivors, and Disability Insurance" , in reference to its three components. It is primarily funded through a dedicated payroll tax...

    • Social Security (United States)
      Social Security (United States)
      In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

    • Social welfare provision
  • Stop-loss insurance provides protection against catastrophic or unpredictable losses. It is purchased by organizations who do not want to assume 100% of the liability for losses arising from the plans. Under a stop-loss policy, the insurance company becomes liable for losses that exceed certain limits called deductibles.

Closed community self-insurance


Some communities prefer to create virtual insurance amongst themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious
Religion
Religion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...

 groups, including the Amish
Amish
The Amish , sometimes referred to as Amish Mennonites, are a group of Christian church fellowships that form a subgroup of the Mennonite churches...

 and some Muslim
Muslim
A Muslim, also spelled Moslem, is an adherent of Islam, a monotheistic, Abrahamic religion based on the Quran, which Muslims consider the verbatim word of God as revealed to prophet Muhammad. "Muslim" is the Arabic term for "submitter" .Muslims believe that God is one and incomparable...

 groups, depend on support provided by their communities
Community
The term community has two distinct meanings:*a group of interacting people, possibly living in close proximity, and often refers to a group that shares some common values, and is attributed with social cohesion within a shared geographical location, generally in social units larger than a household...

 when disaster
Disaster
A disaster is a natural or man-made hazard that has come to fruition, resulting in an event of substantial extent causing significant physical damage or destruction, loss of life, or drastic change to the environment...

s strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

 of explicit insurance contracts.

In the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

, The Crown
The Crown
The Crown is a corporation sole that in the Commonwealth realms and any provincial or state sub-divisions thereof represents the legal embodiment of governance, whether executive, legislative, or judicial...

 (which, for practical purposes, meant the civil service
Civil service
The term civil service has two distinct meanings:* A branch of governmental service in which individuals are employed on the basis of professional merit as proven by competitive examinations....

) did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies, and rented back, this arrangement is now less common and may have disappeared altogether.

Insurance companies


Insurance companies may be classified into two groups:
  • Life insurance companies, which sell life insurance, annuities and pensions products.
  • Non-life, general, or property/casualty insurance companies, which sell other types of insurance.


General insurance companies can be further divided into these sub categories.
  • Standard lines
  • Excess lines


In most countries, life and non-life insurers are subject to different regulatory regimes and different tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 and accounting rules. The main reason for the distinction between the two types of company is that life, annuity, and pension business is very long-term in nature — coverage for life assurance or a pension can cover risks over many decade
Decade
A decade is a period of 10 years. The word is derived from the Ancient Greek dekas which means ten. This etymology is sometime confused with the Latin decas and dies , which is not correct....

s. By contrast, non-life insurance cover usually covers a shorter period, such as one year.

In the United States, standard line insurance companies are "mainstream" insurers. These are the companies that typically insure autos, homes or businesses. They use pattern or "cookie-cutter" policies without variation from one person to the next. They usually have lower premiums than excess lines and can sell directly to individuals. They are regulated by state laws that can restrict the amount they can charge for insurance policies.

Excess line insurance companies (also known as Excess and Surplus) typically insure risks not covered by the standard lines market. They are broadly referred as being all insurance placed with non-admitted insurers. Non-admitted insurers are not licensed in the states where the risks are located. These companies have more flexibility and can react faster than standard insurance companies because they are not required to file rates and forms as the "admitted" carriers do. However, they still have substantial regulatory requirements placed upon them. State laws generally require insurance placed with surplus line agents and brokers not to be available through standard licensed insurers.

Insurance companies are generally classified as either mutual
Mutual insurance
A mutual insurance company is an insurance company which has no shareholders but instead is owned entirely by its policyholders. The primary form of financial business set up as a mutual company in the United States has been mutual insurance. Under this idea, what would have been profits are...

 or stock companies. Mutual companies are owned by the policyholders, while stockholders (who may or may not own policies) own stock insurance companies.

Demutualization
Demutualization
Demutualization is the process by which a customer-owned mutual organization or co-operative changes legal form to a joint stock company. It is sometimes called stocking or privatization. As part of the demutualization process, members of a mutual usually receive a "windfall" payout, in the form...

 of mutual insurers to form stock companies, as well as the formation of a hybrid known as a mutual holding company, became common in some countries, such as the United States, in the late 20th century.

Other possible forms for an insurance company include reciprocals
Reciprocal inter-insurance exchange
A reciprocal inter-insurance exchange, is an insurance company referred to in United States state legislation as either a reciprocal insurance exchange, a reciprocal interinsurance exchange, or perhaps most properly a reciprocal inter-insurance exchange and is managed by an attorney in fact...

, in which policyholders reciprocate in sharing risks, and Lloyd's organizations.

Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company's financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.

Reinsurance
Reinsurance
Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

 companies are insurance companies that sell policies to other insurance companies, allowing them to reduce their risks and protect themselves from very large losses. The reinsurance market is dominated by a few very large companies, with huge reserves. A reinsurer may also be a direct writer of insurance risks as well.

Captive insurance
Captive insurance
Captive insurance companies are insurance companies established with the specific objective of financing risks emanating from their parent group or groups, but they sometimes also insure risks of the group's customers as well...

 companies may be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity (which is a 100% subsidiary of the self-insured parent company); of a "mutual" captive (which insures the collective risks of members of an industry); and of an "association" captive (which self-insures individual risks of the members of a professional, commercial or industrial association). Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.

The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.

Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background:
  • heavy and increasing premium costs in almost every line of coverage;
  • difficulties in insuring certain types of fortuitous risk;
  • differential coverage standards in various parts of the world;
  • rating structures which reflect market trends rather than individual loss experience;
  • insufficient credit for deductibles and/or loss control efforts.


There are also companies known as 'insurance consultants'. Like a mortgage broker, these companies are paid a fee by the customer to shop around for the best insurance policy amongst many companies. Similar to an insurance consultant, an 'insurance broker' also shops around for the best insurance policy amongst many companies. However, with insurance brokers, the fee is usually paid in the form of commission from the insurer that is selected rather than directly from the client.

Neither insurance consultants nor insurance brokers are insurance companies and no risks are transferred to them in insurance transactions. Third party administrators are companies that perform underwriting and sometimes claims handling services for insurance companies. These companies often have special expertise that the insurance companies do not have.

The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage (or coverage only from a government-backed insurance pool or other arrangement with less attractive payouts for losses). A number of independent rating agencies provide information and rate the financial viability of insurance companies.

Across the world



Global insurance premiums grew by 3.4% in 2008 to reach $4.3 trillion. For the first time in the past three decades, premium income declined in inflation-adjusted terms, with non-life premiums falling by 0.8% and life premiums falling by 3.5%. The insurance industry is exposed to the global economic downturn on the assets side by the decline in returns on investments and on the liabilities side by a rise in claims. So far the extent of losses on both sides has been limited although investment returns fell sharply following the bankruptcy of Lehman Brothers
Lehman Brothers
Lehman Brothers Holdings Inc. was a global financial services firm. Before declaring bankruptcy in 2008, Lehman was the fourth largest investment bank in the USA , doing business in investment banking, equity and fixed-income sales and trading Lehman Brothers Holdings Inc. (former NYSE ticker...

 and bailout of AIG
American International Group
American International Group, Inc. or AIG is an American multinational insurance corporation. Its corporate headquarters is located in the American International Building in New York City. The British headquarters office is on Fenchurch Street in London, continental Europe operations are based in...

 in September 2008. The financial crisis has shown that the insurance sector is sufficiently capitalised. The vast majority of insurance companies had enough capital to absorb losses and only a small number turned to government for support.

Advanced economies account for the bulk of global insurance. With premium income of $1,753bn, Europe was the most important region in 2008, followed by North America $1,346bn and Asia $933bn. The top four countries generated more than a half of premiums. The US and Japan alone accounted for 40% of world insurance, much higher than their 7% share of the global population. Emerging markets accounted for over 85% of the world’s population but generated only around 10% of premiums. Their markets are however growing at a quicker pace.

Regulatory differences



In the United States, insurance is regulated by the states under the McCarran-Ferguson Act
McCarran-Ferguson Act
The McCarran–Ferguson Act, 15 U.S.C. §§ 1011-1015, is a United States federal law that exempts the business of insurance from most federal regulation, including federal anti-trust laws to a limited extent. The McCarran–Ferguson Act was passed by Congress in 1945 after the Supreme Court ruled in...

, with "periodic proposals for federal intervention", and a nonprofit coalition of state insurance agencies called the National Association of Insurance Commissioners
National Association of Insurance Commissioners
The National Association of Insurance Commissioners is an Internal Revenue Code Section 501 non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. The NAIC was formed in 1871. Its current...

 works to harmonize the country's different laws and regulations. The National Conference of Insurance Legislators (NCOIL) also works to harmonize the different state laws.

In the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

, the Third Non-Life Directive and the Third Life Directive, both passed in 1992 and effective 1994, created a single insurance market in Europe and allowed insurance companies to offer insurance anywhere in the EU (subject to permission from authority in the head office) and allowed insurance consumers to purchase insurance from any insurer in the EU.

The insurance industry in China was nationalized in 1949 and thereafter offered by only a single state-owned company, the People's Insurance Company of China
People's Insurance Company of China
People's Insurance Company of China Holdings Company is a state-owned company in the People's Republic of China. The holding company promotes its subsidiaries, PICC Asset Management Company Limited and PICC Property and Casualty Company Limited .PICC P&C is China's largest insurer of casualty...

, which was eventually suspended as demand declined in a communist environment. In 1978, market reforms led to an increase in the market and by 1995 a comprehensive Insurance Law of the People's Republic of China was passed, followed in 1998 by the formation of China Insurance Regulatory Commission
China Insurance Regulatory Commission
The China Insurance Regulatory Commission is an agency of China authorized by the State Council to regulate the Chinese insurance products and services market and maintain legal and stable operations of insurance industry...

 (CIRC), which has broad regulatory authority over the insurance market of China.

In India, IRDA is insurance regulatory authority. As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development Authority (IRDA), which was constituted by an act of parliament. National Insurance Academy, Pune is apex insurance capacity builder institute promoted with support from Ministry of Finance and by LIC, Life & General Insurance compnies.

Insurance insulates too much


By creating a "security blanket" for its insureds, an insurance company may inadvertently find that its insureds may not be as risk-averse as they might otherwise be (since, by definition, the insured has transferred the risk to the insurer), a concept known as moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

. To reduce their own financial exposure, insurance companies have contractual clauses that mitigate their obligation to provide coverage if the insured engages in behavior that grossly magnifies their risk of loss or liability.

For example, life insurance companies may require higher premiums or deny coverage altogether to people who work in hazardous occupations or engage in dangerous sports. Liability insurance providers do not provide coverage for liability arising from intentional tort
Intentional tort
An intentional tort is a category of torts that describes a civil wrong resulting from an intentional act on the part of the tortfeasor. The term negligence, on the other hand, pertains to a tort that simply results from the failure of the tortfeasor to take sufficient care in fulfilling a duty...

s committed by or at the direction of the insured. Even if a provider were so irrational as to want to provide such coverage, it is against the public policy of most countries to allow such insurance to exist, and thus it is usually illegal.

Complexity of insurance policy contracts



Insurance policies can be complex and some policyholders may not understand all the fees and coverages included in a policy. As a result, people may buy policies on unfavorable terms. In response to these issues, many countries have enacted detailed statutory and regulatory regimes governing every aspect of the insurance business, including minimum standards for policies and the ways in which they may be advertised
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...

 and sold.

For example, most insurance policies in the English language today have been carefully drafted in plain English
Plain English
Plain English is a generic term for communication styles that emphasise clarity, brevity and the avoidance of technical language – particularly in relation to official government communication, including laws.The intention is to write in a manner that is easily understood by the target...

; the industry learned the hard way that many courts will not enforce policies against insureds when the judges themselves cannot understand what the policies are saying. Typically, courts construe ambiguities in insurance policies against the insurance company and in favor of coverage under the policy.

Many institutional insurance purchasers buy insurance through an insurance broker. While on the surface it appears the broker represents the buyer (not the insurance company), and typically counsels the buyer on appropriate coverage and policy limitations, it should be noted that in the vast majority of cases a broker's compensation comes in the form of a commission as a percentage of the insurance premium, creating a conflict of interest in that the broker's financial interest is tilted towards encouraging an insured to purchase more insurance than might be necessary at a higher price. A broker generally holds contracts with many insurers, thereby allowing the broker to "shop" the market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...

 for the best rates and coverage possible.

Insurance may also be purchased through an agent. Unlike a broker, who represents the policyholder, an agent represents the insurance company from whom the policyholder buys. Just as there is a potential conflict of interest with a broker, an agent has a different type of conflict. Because agents work directly for the insurance company, if there is a claim the agent may advise the client to the benefit of the insurance company. It should also be noted that agents generally can not offer as broad a range of selection compared to an insurance broker.

An independent insurance consultant advises insureds on a fee-for-service retainer, similar to an attorney, and thus offers completely independent advice, free of the financial conflict of interest of brokers and/or agents. However, such a consultant must still work through brokers and/or agents in order to secure coverage for their clients.

Limited consumer benefits


Economists and consumer advocates generally consider insurance to be worthwhile for low-probability, catastrophic losses, but not for high-probability, small losses. Because of this, consumers are advised to select high deductible
Deductible
In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...

s and to not insure losses which would not cause a disruption in their life. However, consumers have shown a tendency to prefer low deductibles and to prefer to insure relatively high-probability, small losses over low-probability, perhaps due to not understanding or ignoring the low-probability risk. This is associated with reduced purchasing of insurance against low-probability losses, and may result in increased inefficiencies from moral hazard
Moral hazard
In economic theory, moral hazard refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.Moral hazard...

.

Redlining


Redlining
Redlining
Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a...

 is the practice of denying insurance coverage in specific geographic areas, supposedly because of a high likelihood of loss, while the alleged motivation is unlawful discrimination. Racial profiling
Racial profiling
Racial profiling refers to the use of an individual’s race or ethnicity by law enforcement personnel as a key factor in deciding whether to engage in enforcement...

 or redlining
Redlining
Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. The term "redlining" was coined in the late 1960s by John McKnight, a...

 has a long history in the property insurance industry in the United States. From a review of industry underwriting and marketing materials, court documents, and research by government agencies, industry and community groups, and academics, it is clear that race has long affected and continues to affect the policies and practices of the insurance industry.

In July, 2007, The Federal Trade Commission (FTC) released a report presenting the results of a study concerning credit-based insurance score
Insurance score
An insurance score - also called an insurance credit score - is a numerical point system based on select credit report characteristics. There is no direct relationship to financial credit scores used in lending decisions, as insurance scores are not intended to measure creditworthiness but rather...

s in automobile insurance. The study found that these scores are effective predictors of risk. It also showed that African-Americans and Hispanics are substantially overrepresented in the lowest credit scores, and substantially underrepresented in the highest, while Caucasians and Asians are more evenly spread across the scores. The credit scores were also found to predict risk within each of the ethnic groups, leading the FTC to conclude that the scoring models are not solely proxies for redlining. The FTC indicated little data was available to evaluate benefit of insurance scores to consumers. The report was disputed by representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice, for relying on data provided by the insurance industry.
All states have provisions in their rate regulation laws or in their fair trade practice acts that prohibit unfair discrimination, often called redlining, in setting rates and making insurance available.

In determining premiums and premium rate structures, insurers consider quantifiable factors, including location, credit score
Credit score
A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person...

s, gender
Gender
Gender is a range of characteristics used to distinguish between males and females, particularly in the cases of men and women and the masculine and feminine attributes assigned to them. Depending on the context, the discriminating characteristics vary from sex to social role to gender identity...

, occupation
Profession
A profession is a vocation founded upon specialized educational training, the purpose of which is to supply disinterested counsel and service to others, for a direct and definite compensation, wholly apart from expectation of other business gain....

, marital status
Marital status
A person's marital status indicates whether the person is married. Questions about marital status appear on many polls and forms, including censuses and credit card applications.In the simplest sense, the only possible answers are "single" or "married"...

, and education
Education
Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...

 level. However, the use of such factors is often considered to be unfair or unlawfully discriminatory, and the reaction against this practice has in some instances led to political disputes about the ways in which insurers determine premiums and regulatory intervention to limit the factors used.

An insurance underwriter's job is to evaluate a given risk as to the likelihood that a loss will occur. Any factor that causes a greater likelihood of loss should theoretically be charged a higher rate. This basic principle of insurance must be followed if insurance companies are to remain solvent. Thus, "discrimination" against (i.e., negative differential treatment of) potential insureds in the risk evaluation and premium-setting process is a necessary by-product of the fundamentals of insurance underwriting. For instance, insurers charge older people significantly higher premiums than they charge younger people for term life insurance. Older people are thus treated differently than younger people (i.e., a distinction is made, discrimination occurs). The rationale for the differential treatment goes to the heart of the risk a life insurer takes: Old people are likely to die sooner than young people, so the risk of loss (the insured's death) is greater in any given period of time and therefore the risk premium must be higher to cover the greater risk. However, treating insureds differently when there is no actuarially sound reason for doing so is unlawful discrimination.

What is often missing from the debate is that prohibiting the use of legitimate, actuarially sound factors means that an insufficient amount is being charged for a given risk, and there is thus a deficit in the system. The failure to address the deficit may mean insolvency and hardship for all of a company's insureds. The options for addressing the deficit seem to be the following: Charge the deficit to the other policyholders or charge it to the government (i.e., externalize outside of the company to society at large).

Insurance patents



New assurance products can now be protected from copying with a business method patent
Business method patent
Business method patents are a class of patents which disclose and claim new methods of doing business. This includes new types of e-commerce, insurance, banking, tax compliance etc. Business method patents are a relatively new species of patent and there have been several reviews investigating the...

 in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

.

A recent example of a new insurance product that is patented is Usage Based auto insurance. Early versions were independently invented and patented by a major US auto insurance company, Progressive Auto Insurance
Progressive Corporation
The Progressive Corporation , known as the Progressive Casualty Insurance Company through its subsidiaries, provides personal automobile insurance, and other specialty property-casualty insurance and related services in the United States....

  and a Spanish independent inventor, Salvador Minguijon Perez .

Many independent inventors are in favor of patenting new insurance products since it gives them protection from big companies when they bring their new insurance products to market. Independent inventors account for 70% of the new US patent applications in this area.

Many insurance executives are opposed to patenting insurance products because it creates a new risk for them. The Hartford
The Hartford
The Hartford Financial Services Group, Inc. , usually known as The Hartford, is a Fortune 500 company and one of America’s largest investment and insurance companies...

 insurance company, for example, recently had to pay $80 million to an independent inventor, Bancorp Services, in order to settle a patent infringement and theft of trade secret lawsuit for a type of corporate owned life insurance product invented and patented by Bancorp.

There are currently about 150 new patent applications on insurance inventions filed per year in the United States. The rate at which patents have issued has steadily risen from 15 in 2002 to 44 in 2006.

Inventors can now have their insurance US patent applications reviewed by the public in the Peer to Patent
Peer to patent
The Peer To Patent project is an initiative that seeks to assist patent offices in improving patent quality by gathering public input in a structured, productive manner...

 program. The first insurance patent application to be posted was US2009005522 “Risk assessment company”. It was posted on March 6, 2009. This patent application describes a method for increasing the ease of changing insurance companies.

The insurance industry and rent-seeking


Certain insurance products and practices have been described as rent-seeking by critics. That is, some insurance products or practices are useful primarily because of legal benefits, such as reducing taxes, as opposed to providing protection against risks of adverse events. Under United States tax law, for example, most owners of variable annuities
Annuity (US financial products)
In the United States an annuity contract is created when an insured party, usually an individual, pays a life insurance company a single premium that will later be distributed back to the insured party over time...

 and variable life insurance
Variable universal life insurance
Variable Universal Life Insurance is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner...

 can invest their premium payments in the stock market and defer or eliminate paying any taxes on their investments until withdrawals are made. Sometimes this tax deferral is the only reason people use these products. Another example is the legal infrastructure which allows life insurance to be held in an irrevocable trust which is used to pay an estate tax while the proceeds themselves are immune from the estate tax.

Religious concerns


Muslim scholars have varying opinions about insurance. Insurance policies that earn interest are generally considered to be a form of riba
Riba
Riba means one of the senses of "usury" . Riba is forbidden in Islamic economic jurisprudence fiqh and considered as a major sin...

(usury
Usury
Usury Originally, when the charging of interest was still banned by Christian churches, usury simply meant the charging of interest at any rate . In countries where the charging of interest became acceptable, the term came to be used for interest above the rate allowed by law...

) and some consider even policies that do not earn interest to be a form of gharar (speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...

). Some argue that gharar is not present due to the actuarial science behind the underwriting.

Jewish rabbinical scholars also have expressed reservations regarding insurance as an avoidance of God's will but most find it acceptable in moderation.

Some Christians believe insurance represents a lack of faith and there is a long history of resistance to commercial insurance in Anabaptist
Anabaptist
Anabaptists are Protestant Christians of the Radical Reformation of 16th-century Europe, and their direct descendants, particularly the Amish, Brethren, Hutterites, and Mennonites....

 communities (Mennonites, Amish
Amish
The Amish , sometimes referred to as Amish Mennonites, are a group of Christian church fellowships that form a subgroup of the Mennonite churches...

, Hutterites, Brethren in Christ) but many participate in community-based self-insurance programs that spread risk within their communities.

See also

  • ACORD
    ACORD
    ACORD, the Association for Cooperative Operations Research and Development, is the insurance industry's nonprofit standards developer, a resource for information about object technology, EDI, XML and electronic commerce in the United States and abroad....

  • Agent of Record
    Agent of Record
    An agent of record is an individual or a legal entity with a duly properly executed in line with the prevailing legal norms and regulations contractual agreement with an insurance policy owner...

  • Earthquake loss
  • Financial services
    Financial services
    Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

     (broader industry to which insurance belongs)
  • Five for one
    Five for One
    Five for one is a reference in William Shakespeare's The Tempest to a traveller's insurance practice conducted in medieval England.-Origin:Because merchant-adventurers sailing from the Kingdom of England would usually not return, they could deposit money with an underwriter upon leaving and, upon...

  • Geneva Association
    Geneva Association
    The Geneva Association is the leading international insurance “think tank” for strategically important insurance and risk management issues.The Geneva Association identifies fundamental trends and strategic issues where insurance plays a substantial role or which influence the insurance sector...

     (the International Association for the Study of Insurance Economics)
  • Global assets under management
    Global assets under management
    Global asset allocation or Global assets under management consists of pension funds, insurance companies and mutual funds. Other funds under management include private wealth and alternative assets such as hedge funds and private equity...

  • Insurance fraud
    Insurance fraud
    Insurance fraud is any act committed with the intent to fraudulently obtain payment from an insurer.Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions...

  • Insurance Hall of Fame
    Insurance Hall of Fame
    The Insurance Hall of Fame is an international list of business leaders in the insurance field. It was founded in 1957 and has more than 100 inductees. It is kept by the University of Alabama in the United States. Its first inductee was Benjamin Franklin, presumably for his efforts in establishing...

  • Insurance law
    Insurance law
    Insurance law is the name given to practices of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer...

  • Insurance Premium Tax (UK)
    Insurance Premium Tax (UK)
    Insurance premium tax is a tax on general insurance premiums within the United Kingdom.-Law:The main law relating to IPT is in the:* Finance Act 1994, sections 48-74 and Schedules 6A, 7 and 7A, as amended by the Finance Acts 1997, 1998 and 1999...

  • Intergovernmental Risk Pool
  • The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know
    The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know
    Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know is a 1982 book on the insurance industry. It was written by financial journalist Andrew Tobias who became famous for his earlier book The Only Investment Guide You'll Ever Need. It covers the financial details of life,...

    (book)
  • List of finance topics
  • List of insurance topics
  • List of United States insurance companies
  • Social security
    Social security
    Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

  • Uberrima fides
    Uberrima fides
    Uberrima fides is a Latin phrase meaning "utmost good faith" . It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal...

  • Universal health care
    Universal health care
    Universal health care is a term referring to organized health care systems built around the principle of universal coverage for all members of society, combining mechanisms for health financing and service provision.-History:...

  • Welfare state
    Welfare state
    A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those...



Country-specific articles:
  • Insurance in Australia
    Insurance in Australia
    Australia has a sophisticated and well-developed insurance market, which can be divided into roughly three components: life insurance, general insurance and health insurance...

  • Insurance in India
    Insurance in India
    Insurance is a subject listed in the concurrent list in the Seventh Schedule to the Constitution of India where both centre and states can legislate. The insurance sector has gone through a number of phases and changes...

  • Insurance in the United States
    Insurance in the United States
    Insurance in the United States refers to the market for risk in the United States of America. Insurance, generally, is a contract in which the insurer , agrees to compensate or indemnify another party for specified loss or damage to a...

  • Insurance in the United Kingdom

External links